Why the Stock Market Punished Shares of Tesla

Investors sold off shares of Tesla Motors (NASDAQ: TSLA) on Tuesday, sending the stock down nearly 9% to around $116 a share at the time of this writing. That's a steep decline from where the electric-car maker's stock was trading earlier this week at $133. The sell-off comes on the heels of an analyst note from Goldman Sachs, in which analyst Patrick Archambault pegs Tesla's fair value at an averaged price of $84 per share.

However, before you panic, let's take a closer look at why this is of little significance to long-term investors.

Behind the sell-off Shares of Tesla have climbed as much as 275% on the year. Therefore, it was only a matter of time until investors took some gains off the table. Tuesday's move, however, is compliments of Archambault's three-tiered approach to valuing the stock. The analyst laid out his bearish, bullish, and baseline scenarios for the stock, taking the average between them to arrive at his $84 target price.

As one of the best-performing stocks so far this year, there's no doubt that Tesla has been trading at a lofty valuation relative to earnings. However, if you're currently invested in Tesla, you should be prepared to be in this name for the long haul. That's because we're still in the early stages of a very promising growth story.

The company continues to ramp up production on its acclaimed Model S car, and has plans to release its first all-electric SUV, the Model X, next year. Last week, Tesla CEO Elon Musk shared with Bloomberg his confidence that the EV maker could increase its production pace to 800 vehicles a week in 2014, twice as good as the company's initial goal of 400 a week. This is a big piece of the puzzle for Tesla.

In Goldman's report today the analyst's bull case had Tesla selling 200,000 vehicles and taking 3.5% global market share at best. However, Musk sees a very different Tesla. As the company rolls out new and increasingly more affordable electric cars, Musk expects Tesla's California-based plant to produce as many as 500,000 vehicles a year, according to Bloomberg. Moreover, if there's one thing the Tesla CEO is good at, it's living up to his promises.

This is just the beginning for Tesla, which is why shareholders with a time horizon of three to five years should stay in this name despite the recent volatility in the stock. However, if you'd rather invest in a more established automaker, a new report from the Fool's top analysts uncovers two fresh opportunities for investors.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Does anyone know what Elon meant by saying that they will make all kinds of cars in Teslive. Could that be a hint for making vehicles for the army? It sounds right. If the army uses these old ICE that are much slower than these electric cars then it is at a disadvantage! I feel that Tesla could have a LARGE contract with the army soon, or better said I feel that it SHOULD.

A tank that could go 100 yards before the battery needed charging or swapped out. The biggest advantage for electric vehicles is energy savings being able to prolong the battery charge. Sleek aerodynamic cars, efficient LED technology, and other energy saving ideas all work well to extend the life of the battery.

0 to 60 in a couple of seconds is cool but it really sucks down the power. A tank, and most other military vehicles speed, heavy armor plating, high btu ac units with self purifying air systems are it's best defense. Those features run counter to being powered by battery. Secondly the battery would need to be swapped out as charging one that big could take hours. Hardly something you would want to do under fire. Also it would need to be semiautomated and be able to be swapped out in the field.

Where a EV could be of use to the military is stateside. There are lots of tasks that don't require big and bulky. It would be easy for a base to set up a charging station and have a fleet of EV for staff.

Tesla is filling a small segment of the market. 200k vehicles a year may be possible but when the market expands to that level Tesla will be forced out. Their marketing is flawed. People will want to drive to a dealer and trade in their old car and drive off with a new one.

Because of how small they are and the type of person they are selling to now they don't have to deal with trades or dealing with people who expect not to wait weeks or even months before getting their new car. Could you imagine Ford telling customers that there's a 2 month (longer for the more popular models) waiting period for a F150 and be required to give a $2500 deposit?

Sending report...

Today's Market

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!